Ways of Winning in a Bull Market

“In a year or two, we may look back and think it’s funny we focused on Tesla being an electric-car company when they’re building a big competitive advantage in autonomous driving,” he said.

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Gavin Baker, manager of the Fidelity OTC Portfolio fund, in 2014. He makes big bets on major technology stocks, and he sees artificial intelligence as an emerging trend. “A.I. will change the world in ways we can’t even imagine now,” he said. The fund returned 9.34 percent in the last quarter.Credit
Rick Friedman for The New York Times

Tesla’s stock has been falling lately, dropping more than 15 percent from a peak on June 23. Mr. Baker said his fund has added to its Tesla position this year, though he wouldn’t comment on whether the fund had bought or sold shares recently.

Mr. Baker has managed his fund since 2009. Over that time, he said, he has learned patience: “I appreciate more and more that, in a world dominated by people trading E.T.F.s and quantitative traders and hedge funds, the biggest competitive advantage I have is a long-term time horizon.” Mr. Baker retains an average holding for about two years and will keep favored stocks far longer. Nvidia, for example, has been an overweight in the fund — a larger allocation than in the benchmark — for Mr. Baker’s whole tenure.

The fund, with an expense ratio of 0.91 percent, returned 9.34 percent in the second quarter, compared with a total return of 3.09 percent, including dividends, for the Standard & Poor’s 500-stock index.

Ahead of the Market

How three of the better performers of the second quarter of 2017 fared against the market — and against their peer groups of funds.

MCSI ACWI ex U.S.

TOTAL RET.

MCSI ACWI ex U.S.

TOTAL RET.

Wasatch Micro Cap Fund

Dan Chace, co-manager of the Wasatch Micro Cap Fund, is even more patient with stocks than Mr. Baker: His fund retains an average holding for about three years, compared with a little less than two for the typical actively managed stock fund.

Yet he said he tries to guard against being too patient, striving to stay focused on why he bought a stock and not stumbling into what he called “thesis creep.” “If things don’t play out, you don’t want to rationalize or justify,” Mr. Chace said.

The Wasatch fund differs from the typical micro-cap offering tracked by Morningstar in that it invests more of its shareholders’ money abroad. About 20 percent of the fund is parked in foreign stocks, compared with 3 percent for its average peer. Mr. Chace, who has managed the fund since 2004, can invest as much as 30 percent of the assets in foreign fare. “We’re going to keep pushing it up,” he said.

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He said he has raised the fund’s foreign stake because the United States micro-cap pool has been stagnant. (Wasatch counts as micro-caps companies with market capitalizations of less than $1.5 billion.) Over the last decade, relatively few domestic companies have issued stock in initial public offerings, or I.P.O.s, he said.

India, in contrast, has many small companies with good growth rates, and Mr. Chace has gravitated there. His fund’s top two holdings at the end of March — MakeMyTrip and Natco Pharma — are Indian ventures.

Similarly, one of his recent good performers was V-Mart Retail, which specializes in selling apparel in India’s smaller cities and countryside. Because of the company’s rural market, it’s not being squeezed by e-commerce companies in the way many big retailers are, he said.

Mr. Chace’s fund, with an expense ratio of 1.67 percent, returned 8.93 percent in the second quarter.

Matthews Asia Innovators

India is also a hunting ground for Michael J. Oh, lead manager of the Matthews Asia Innovators Fund. Mr. Oh, who grew up in Seoul, South Korea, and moved to the United States as a teenager, scours Asia for companies developing new technologies or creating innovative products and services. About a third of the fund’s assets are invested in China and Hong Kong and about a fifth in South Korea. India accounts for 8 percent.

Until last year, the fund was known as the Matthews Science and Technology Fund, but its sponsor, Matthews Asia, changed the name because Mr. Oh, who has overseen the fund since 2006, was finding opportunities beyond that narrower niche. He said his goal is to invest in companies benefiting from a growing middle class throughout Asia and rising disposable incomes there. “The question we’re asking is, ‘What will consumers with incremental income spend on?’”

Lately, an answer has been beauty products. One of the fund’s larger holdings has been Hugel, a South Korean cosmetics and pharmaceuticals company whose offerings include botulinum toxin (or Botox) wrinkle treatments. Korean cosmetics makers have been innovators for more than a decade, Mr. Oh said, but their market was largely limited to South Korea and Japan.

Now a surging middle class in China has created a big new pool of potential buyers, he said. In April, Bain Capital agreed to pay about $800 million for a controlling stake in Hugel.

Mr. Oh invested in the TAL Education Group, a Beijing tutoring company, for similar reasons. Education is highly valued there, he said, and as parents see their discretionary income rise, they’ll often spend some of the surfeit on their children’s educations. His fund, with an expense ratio of 1.24 percent, returned 13.57 percent in the second quarter.